Amazon (NASDAQ: AMZN) could soon partner with Time Warner (NYSE: TWX) to add HBO Now to its Amazon Channels in a three-year deal, according to The Information . Could that give Amazon a strategic advantage against Netflix (NASDAQ: NFLX) in the streaming video market? Let's take a closer look at this deal to decide.
That growth gives Amazon tremendous clout in negotiations with streaming content providers, who are likely willing to give Amazon users a discount in exchange for a ride on the Prime bandwagon.
How this deal could hurt Netflix
Netflix is available on Amazon's Fire TV platform, but it isn't discounted on Amazon Channels. Since Amazon Video is Netflix's fastest growing competitor, it's highly unlikely that Netflix wants to tether itself to Amazon's ecosystem and lower its prices for Prime members. But the bigger Amazon Prime grows as a "one stop shop" for e-commerce purchases, video, music, e-books, and other perks, the more attractive Amazon Channels might look as an alternative to traditional cable bundles.
If Amazon signs a partnership with HBO, it could also lead to a closer relationship with AT&T (NYSE: T) , which recently agreed to buy Time Warner. Amazon, Netflix, and other streaming players currently pay AT&T and other internet service providers "paid peering" fees for faster Internet connections. AT&T also "zero rates" DirecTV videos on its own wireline and wireless networks -- meaning that viewing those videos won't deplete data plans. However, companies like Netflix must pay AT&T to zero-rate their streaming video apps.
If Amazon and AT&T expand their relationship, AT&T may offer lower paid peering rates to Amazon, or even zero-rate Amazon Channels on its networks. Doing so would immediately raise red flags with regulators, but the Trump Administration's soft stance on net neutrality might let such deals pass. If that happens, Netflix might need to raise its rates again, making it pricier than an Amazon Channels/HBO Now combination.
Let's not get ahead of ourselves yet...
Getting a discount on HBO Now for Amazon Channels would be a clever move by Amazon, but there's no guarantee that a deal will be signed. If a deal is signed without a Prime discount, it would be redundant because the HBO Now app has been available on Fire TV since its launch last year.
While Amazon Channels extends Amazon's Prime video ecosystem with additional subscriptions, it doesn't directly impact the battle between Amazon Video and Netflix. Netflix investors should keep an eye on a potential deal, but they shouldn't assume that it will let HBO Now hitch a ride on Amazon Prime to become a heavyweight contender in the crowded streaming market.
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